Understanding Henson Trust in Ontario: A Complete Explanation

Henson Trusts are an important estate planning tool in Ontario, particularly for individuals with disabilities. This comprehensive guide from Tabuchi Law explores the definition, benefits, setup, and legalities of Henson Trusts, as well as how they differ from other trust structures. Learn how a Henson Trust can protect government benefits and manage assets for disabled beneficiaries.

• What is a Henson Trust?
• Benefits of a Henson Trust
• Setting Up a Henson Trust
• Henson Trusts for Disabled Beneficiaries
• Henson Trust Legalities
• Henson Trust vs. Discretionary Trust
• Managing Henson Trust Assets
• Impact of Henson Trusts on Government Benefits

What is a Henson Trust?

A Henson Trust, named after the landmark Ontario court case, is a unique type of discretionary trust designed to provide for the long-term care and financial security of a beneficiary with a disability. Well, here's the thing - unlike a standard trust, a Henson Trust gives the trustee complete discretion over if and when distributions are made to the beneficiary. This ensures the beneficiary's government benefits, such as Ontario Disability Support Program (ODSP) payments, are not affected by the trust assets.

Benefits of a Henson Trust

The primary benefit of a Henson Trust is that it allows individuals with disabilities to maintain their government assistance and public benefits, while also providing supplementary funds from the trust. This ensures the beneficiary's quality of life is improved without jeopardizing their critical government support. Additionally, Henson Trusts offer privacy, professional asset management, and the ability to pass wealth to future generations, all while protecting the beneficiary's government entitlements.

Setting Up a Henson Trust

Henson Trusts are typically established as part of a comprehensive estate plan, often within a person's will. The trust is funded, either during the settlor's lifetime or upon their death, and a trustee is appointed to manage the assets. The trustee has complete discretion over if and when distributions are made to the beneficiary. This discretionary control is the key feature that differentiates a Henson Trust from other trust structures. Careful consideration must be given to the selection of the trustee, as they play a critical role in ensuring the trust achieves its intended purpose.

Henson Trusts for Disabled Beneficiaries

Henson Trusts are specifically designed to benefit individuals with disabilities. The discretionary nature of the trust ensures that the beneficiary's government benefits, such as ODSP, are not affected by the trust assets. This allows the beneficiary to maintain their critical public support while also accessing supplementary funds from the Henson Trust to improve their quality of life. Careful planning is required to ensure the trust is structured in a way that fully protects the beneficiary's government entitlements, and an experienced estate planning lawyer can guide you through the process.

Henson Trust Legalities

The legal framework for Henson Trusts in Ontario is well-established, stemming from the landmark 1989 court case Henson v. Ontario (Attorney General). This case confirmed that a properly structured discretionary trust, where the trustee has complete control over distributions, does not count as an asset for the purposes of determining eligibility for government benefits like ODSP.

As long as the beneficiary has no legal right to demand distributions from the trust, the assets are not considered their own and do not affect their government assistance.

Navigating the legalities of Henson Trusts requires the guidance of an experienced estate planning lawyer to ensure full compliance with relevant laws and regulations.

Henson Trust vs. Discretionary Trust

While both Henson Trusts and discretionary trusts provide the trustee with broad discretion over distributions, there are some key differences. The primary distinction is that Henson Trusts are specifically designed to protect government benefits for individuals with disabilities, whereas a discretionary trust may have a wider range of beneficiaries and purposes. Henson Trusts must be structured in a way that ensures the beneficiary has no legal right to demand distributions, which is a critical requirement to maintain their government assistance. Discretionary trusts, on the other hand, may still allow the beneficiary some level of control or expectation of distributions, which could impact their eligibility for public benefits.

Managing Henson Trust Assets

The trustee of a Henson Trust is responsible for prudently managing the trust's assets to ensure the long-term financial security of the beneficiary. This may involve a diversified investment portfolio, real estate holdings, or other assets that can generate income and growth. The trustee must carefully balance the need to preserve the trust's capital while also providing supplementary funds to the beneficiary as required. Regular communication with the beneficiary or their representatives, as well as periodic reviews of the trust's investment strategy, are crucial to ensuring the Henson Trust effectively meets the beneficiary's needs over time.

Impact of Henson Trusts on Government Benefits

The primary purpose of a Henson Trust is to protect the beneficiary's government benefits, such as ODSP payments, while providing supplementary funds to improve their quality of life. As long as the trust is properly structured and the beneficiary has no legal right to demand distributions, the trust assets are not considered part of the beneficiary's own assets for the purposes of determining their eligibility for government assistance. This allows the beneficiary to maintain their critical public support while also accessing the additional resources provided by the Henson Trust.

FAQs

What is the key difference between a Henson Trust and a standard discretionary trust?

The primary distinction is that a Henson Trust is specifically designed to protect government benefits for individuals with disabilities, whereas a discretionary trust may have a wider range of beneficiaries and purposes. Henson Trusts must be structured in a way that ensures the beneficiary has no legal right to demand distributions, which is a critical requirement to maintain their government assistance. Discretionary trusts may still allow the beneficiary some level of control or expectation of distributions, which could impact their eligibility for public benefits.

Can a Henson Trust be established during the settlor's lifetime?

Yes, Henson Trusts can be established during the settlor's lifetime as part of their overall estate plan. This allows the settlor to actively participate in the trust's setup and management, and can provide peace of mind knowing the trust is in place to support the beneficiary's long-term needs. Alternatively, a Henson Trust can also be established through the settlor's will, to take effect upon their passing.

How does a Henson Trust differ from a Registered Disability Savings Plan (RDSP)?

While both Henson Trusts and RDSPs are designed to support individuals with disabilities, they serve different purposes. An RDSP is a tax-advantaged savings account that can be used to save for a disabled person's long-term financial needs. In contrast, a Henson Trust is a discretionary trust that provides supplementary funds to improve the beneficiary's quality of life without affecting their government benefits. Henson Trusts offer more flexibility in asset management and distribution, whereas RDSPs have stricter rules and withdrawal requirements.

Can a Henson Trust be modified or terminated?

Modifying or terminating a Henson Trust can be a complex process, as it requires careful consideration of the trust's structure and the beneficiary's ongoing needs. In general, the trust terms set by the settlor will determine the ability to make changes. Any modifications must be carefully reviewed to ensure they do not jeopardize the beneficiary's government benefits. Termination of a Henson Trust is typically only possible in specific circumstances, such as the beneficiary's passing or a significant change in their financial or care requirements.

How are Henson Trust assets distributed to the beneficiary?

The trustee of a Henson Trust has complete discretion over if and when distributions are made to the beneficiary. This discretionary control is a key feature that differentiates Henson Trusts from other trust structures. The trustee must carefully balance the need to preserve the trust's capital while also providing supplementary funds to the beneficiary as required to improve their quality of life. Regular communication with the beneficiary or their representatives is crucial to ensuring the trust effectively meets the beneficiary's evolving needs over time.